West Asia & North Africa Digest by Ambassador Mahesh Sachdev | September 2020

I) Political Developments 

Regional Impact of Covid-19: Second Wave tapers off
Though the region was, once again, afflicted by Covid-19 pandemic during August 2020, the worst fears were not realised in most countries. As the result, the pecking order of the affected countries (see table below) remained largely stable, albeit at a level higher by around a third. The total number of affected cases in the WANA region crossed two millions. The fatalities crossed 52000. By end of the month under review, Country-wise details were as under:

Cumulative Covid-19 Cases in WANA (as of Sep 1 2020)

Source: Johns Hopkins University Coronavirus Resource Center.
 

Covid-19 and the Individual WANA Countries:

• Iran retained the dubious distinction of being the most affected country of the region – both in confirmed cases and fatalities.
• Following a surge in Covid-19 cases, Gaza Strip was put under 2-day lockdown on August 24 which was later extended by 3 days
• Highest incidents since June forced Turkey authorities to re-impose Covid-19 restrictions on August 25.
• The UN-mediated talks on future Syria Constitution in Geneva were reconvened after 9 months on August 24; these, however, needed to be postponed by three days as some delegates turned out to be Corona positive.
• On August 1, Kuwait banned all air links with 31 Covid-19 stricken countries, including India.    

Saudi Arabia:
On August 7, Pakistani Foreign Minister Shah Mahmood Qureshi told reporters in Islamabad, “I am once again respectfully telling OIC that a meeting of the Council of Foreign Ministers is our expectation. If you cannot convene it, then I’ll be compelled to ask Prime Minister Imran Khan to call a meeting of the Islamic countries that are ready to stand with us on the issue of Kashmir and support the oppressed Kashmiris.” This veiled threat elicited strong, albeit non-public, reaction from Saudi Arabia which refused to extend the financial package of 6.2 bn dollars ($3.2 bn in oil on deferred payment and $3.0 bn in credit) given to Pakistan during Crown Prince Mohammed bin Salman’s visit two years ago. The oil supply arrangement, which expired two months ago, was not renewed and credit payback was sought. Islamabad reportedly had to borrow a billion dollars from China to pay back the Saudi loan tranche. In an act of contrition, Pakistani Chief of Defence Staff Gen Qamar Javed Bajwa visited Riyadh on August 17 but was received only by Vice Minister of Defence Prince Khalid bin Salman and Saudi COGS Maj Gen al-Ruwaili. Pakistani commentators attributed this Saudi snub to Riyadh’s growing economic ties with India.
Comment:
Pakistani leadership hard-pressed the OIC to have an emergency session of Islamic Foreign Ministers on Kashmir to coincide with the first anniversary of Indian abrogation of Article 370 granting autonomy to the territory. As the OIC had had a session of its Contact Group on Kashmir at the level of Permanent Representatives to the UN a month ago, Saudi Arabia apparently thought the Pakistani request was uncalled for, forcing the organisation to take an avoidable anti-India political stance. Riyadh was already unhappy with Islamabad hobnobbing with Turkey, Malaysia and Iran to seed an alternative to the OIC. Saudis were also reportedly miffed at the reports of China – Pakistan Economic Corridor being extended to Iran. Besides, declining oil revenues have compelled the Saudis to tighten their fist.

Pakistani Prime Minister Imran Khan claimed on August 3 that at the US request, Islamabad had been mediating between Saudi Arabia and Iran – and making slow progress.

Saudi Arabia officially categorically denied a Wall Street Journal report (3/8) that it was building a yellow cake (Uranium ingots) fabrication facility with Chinese assistance at al-Ula in the north-west of the country. 

Iran:
The United States failed in its bid to have the arms embargo on Iran extended by the UN Security Council which voted on August 14 against the resolution by 13:2 with only Dominican Republic joining the Americans. On August 9 the GCC Secretary-General issued a statement advocating a continuation of the sanctions accusing Iran of supplying weapons to terrorists and sectarian organisations. Unruffled by this setback, on August 20, the US formally wrote to the Council for invocation of the “snapback” provision of all pre-JCPOA sanctions being re-imposed alleging that Iran had violated terms of the agreement.  Indonesia, the UNSC chair for the month, was to decide within 30 days, but it indicated its inability citing a lack of consensus on this matter. As the US had quit the JCPOA in 2018, many UNSC members considered the American plea to be null and void. In the interregnum, Russian President Putin suggested holding a virtual summit to resolve differences on this issue. The proposal did not find favour with the US side. Amidst this tumult, the US envoy on Iran Brian Hook resigned on August 7 and was to be replaced by Elliot Ibrahim, hitherto US envoy on Venezuela.

On August 14, the US announced the seizure of four Iranian fuel shipments to Venezuela totalling 1.116 mn barrels of fuel, without providing any specific dates. An Iranian ship loaded with Alumina left Venezuela for home.

After a two day visit (August 24-26) by IAEA Chief Rafael Grossi to Tehran, the two sides announced a resolution to the issue of access to two nuclear sites that Iran had denied the international inspectors. On August 23, Iran stated that the accident at Natanz nuclear complex on July 2 was due to an act of sabotage without saying who had carried it out.

Iran displayed a new series of ballistic and cruise missiles at National Defence Industry Day on August 20.

Turkey:
President Recep Tayyip Erdogan announced (7/8) that Turkey has resumed drilling for hydrocarbons in East Mediterranean sea in waters contested by Greece, a fellow NATO member. Even after the EU foreign ministers declared that Ankara’s actions were “antagonistic and dangerous”, President Erdogan publicly refused to back down. Meanwhile, Egypt and Greece ratified (27/8) a maritime boundary agreement which overlapped  a similar agreement signed by Turkey with Libya earlier.

According to Pakistani media (5/8), during his Eid al-Adha greetings phone calls to Pakistani President and PM, President Erdogan expressed solidarity with Pakistani position on Kashmir dispute.

On August 31, Turkish authorities announced the arrest of Mahmut Ozden, Chief of Islamic State of Iraq and Levant (ISIL) in Turkey.

Iraq:
On August 20, Iraqi Prime Minister Mustafa al-Kadhimi was received by President Trump at White House with the latter looking forward to the withdrawal of the remaining US troops in that country. Five deals with the American oil companies were signed during the visit. Following the troop withdrawal from Taji military base near Baghdad on August 23, the number of US troops in Iraq is estimated at around 2000.

The Iraqi army said that a Turkish drone strike had killed two senior officers of Iraqi border guards on August 11. Iraqi protests on this incident were rejected by Ankara asserting that such cross border operations against Kurdish “terrorists” would continue.

The killing of three pro-reform political activists in Basrah governorate in mid-August threw a new gauntlet at Prime Minister al-Kadhimi. While no outfit claimed responsibility, pro-Iran elements were suspected.
 
Syria:
In a policy speech to newly elected MPs on August 12, Syrian President Bashar al-Assad      criticised the US Caesar Act proscribing pro-government Syrian personalities and entities. For post-war reconstruction, he promised to continue anti-corruption measures and pushed for agriculture.

US Secretary of State Mike Pompeo confirmed (14/8) that President Trump had written to his Syrian counterpart about Austin Tice, an American journalist missing in Syria since 2012.
Comment:
This was a rare admission by Trump administration to have formally contacted the Syrian government at such a high level.

Lebanon:
A huge blast ripped through Beirut port on August 4 causing 190 deaths, besides numerous injuries and rendering nearly 250,000 citizens homeless. It was caused by the explosion of 6000 tons of Ammonium Nitrate, an explosive precursor, stored in a port silo for the past six years. The cost of damage caused was put at $15 billion. A fortnight-long state of emergency was declared. The public revulsion at this act of omission and subsequent political apathy and blame game led to resumed demonstrations against “the sectarian-based political establishment”. Prime Minister Hassan Diab resigned on August 10 and Mustapha Adib, hitherto Ambassador to Germany, was appointed as his successor on August 31.

French President Emanuel Macron paid two visits to Beirut on August 6 and 31 respectively. He tried to rebuild ties with Lebanon, a former French protectorate, by taking the lead in advocacy of political and economic reforms. France organised a virtually held international donors’ conference on August 10, which committed total humanitarian assistance of $300 million to Lebanon. In his public pronouncements, President Macron made foreign aid conditional upon these reforms being undertaken. During his second visit, President Macron unveiled a roadmap for comprehensive reforms of the Lebanese state.
Comment:
President Macron attempted to leverage the coincidence of France having carved out “Greater Lebanon” from Syria exactly a hundred years ago. However, today’s Lebanon, having been through a bruising civil war, is very different from what it was a century ago. The country’s political and military landscape is dominated by Shia groups such as Amal political party and Hezbollah militia equipped by Iran and Syria. They are deeply suspicious of French motives and would resist their hard-fought gains being taken away in the name of any secular political dispensation proposed by France. Other political groups would also, in general, prefer the gravy train under the current sectarian politics. Pro-France Maronite Christians lost their preponderance a long time ago. On the other side, Turkey, another colonial power, supports Sunnis and Syria which backs Shia and Druze communities are also active. So, despite popular opprobrium, the dice appeared loaded against any major political reforms even as French pressure seemed to have worked in the expedited nomination of a non-political, but Sunni, PM-designate.

(Further reading: “The sultan et le president: Old colonial powers are bidding for influence in Lebanon”, The Economist, Sept 3 2020; http://go.pardot.com/e/827843/dding-for-influence-in-lebanon/6lj6w/81972500?h=2H52Q-q3ztHTl-y-E02vL3Ui0RAJPDdyQ8Zkvy20kXA)

On August 18, an UN-backed international court investigating 2005 assassination of the then Lebanese PM Rafik Hariri and 21 others by a car bomb, found Salim Jamil, a member of Hezbollah, as guilty in absentia. Three other accused, all members of Hezbollah were let off due to lack of evidence.

Israel:
US President Donald Trump announced on August 13 that Israel and the United Arab Emirates (UAE) have agreed to establish full diplomatic relations calling it “Abraham Accord”. In return for the UAE’s gesture, Israel agreed to suspend extension of its sovereignty over Jordan valley and some other parts of the occupied West Bank as envisaged in the “Trump Plan”. President Trump disclosed that the similar deals were in the works with some other Arab countries, without naming them. He thought that this development would “help unlock the great potential of the region”.

Reactions to Abraham Accord were mostly on predictable lines. Palestine Authority rejected the rationale of suspension on Israeli annexation of parts of West Bank and called it “a complete sell-out”. Hamas which governs Gaza Strip described as “a stab in the back”. Iran strongly denounced the UAE with President Rouhani calling it “a huge mistake” and “a betrayal”. Most other Arab countries reacted positively, albeit with caution.
Comment:
With the signing of Abraham Accord in mid-September in Washington, the UAE would become the third Arab country to recognise Israel (after Egypt and Jordan) and establish bilateral diplomatic relations. Unlike the first two, it does not share any border with Israel and therefore it is essentially “peace-for-peace” deal and not “land-for-peace”.

As subterranean contacts have long existed between the UAE and Israel, this development only meant “outing” of these ties. Yet, unlike Israel where the politicians were ecstatic over this development (Netanyahu: “It is an incredibly exciting moment, a historic moment for peace in the Middle East”) the UAE side was more measured and taciturn. 

The real significance of this breakthrough lied in the geostrategic and geo-economic realm. It was likely to create an alliance between more conservative pro-west Arab states and Israel and create synergy between the two most advanced economies of the region with a high degree of complementarity.

The Israeli air force was in action across Syrian border on August 2 in retaliation to an attack of their border patrol, suspected by the Hezbollah. 

The UAE:
The first reactor of the nuclear power plant at Barakah in UAE went critical on August 1. It is the Arab world’s first nuclear power plant and was built by a South Korean consortium. It would eventually have four reactors of 1400 MW each and would supply nearly a quarter of the UAE’s electric demand. The development was hailed by Abu Dhabi Crown Prince Mohammed bin Zayed as “marking this milestone in the roadmap for sustainable development.”
Comment:
Building a $24.4 billion nuclear power complex by the UAE – a hydrocarbon-rich country with a robust solar power programme in a volatile Gulf region – has raised many eyebrows.

Three small explosions at eateries in Abu Dhabi and Dubai on August 31 resulted in 3 deaths and several injured. Although the authorities were tight-lipped about the cause(s), these were perhaps linked to the arrival of the first commercial flight from Israel to the UAE later on the same day.

In a statement on August 17, the UAE denied the media reports that normalisation of ties with Israel was directed at Iran. On August 25, the UAE stated that acquisition of fifth-generation F-35 jets was a priority stemming from the normalisation of ties with Israel.

The UAE officially scrapped the regulation to boycott Israeli product on August 29. A media report predicted that UAE-Israel bilateral trade could reach $4 billion annually.

Former Spanish King Juan Carlos arrived in Abu Dhabi on August 3 leaving behind a bribery scam connected with a Spanish railway contract in Saudi Arabia. He denied any impropriety.

Qatar:
On August 28, Qatari authorities announced extensive reforms in the country’s labour laws governing the expatriate workers. These included higher minimum monthly wage fixed at Riyal 1000/- (or $274/-) in addition to accommodation and food and abolition of the Kafala (Sponsorship) system under which the original employer’s consent was required for any change of employment. It was replaced by a system of a time-bound notice being given.
Comments:
These reforms were undertaken with an eye to FIFA World Cup in 2022. Several foreign NGOs had criticised the harsh labour conditions under which various sports facilities were being constructed for this prestigious global event. However, these reforms have been announced when most of the construction work has already been completed and most of the workers are no longer required in Qatar. Still, Qatar’s labour reforms are quite progressive when compared to other GCC states.

Sudan:
Curfew was imposed on Port Sudan on August 13 after communal clashes between Beni Amer and Nuba tribal groups.

Demonstrations irrupted in Khartoum on August 17 – first  anniversary of the formation of the transitional government – protesting at the slow pace of the political reforms.

On August 31, the Sudanese government signed separate peace agreements in Juba with five key rebel groups active in Darfour, South Kordofan and the Blue Nile provinces. Two rebel groups active in Darfour refused to sign any peace agreement with the government as it includes high-ranking military officers implicated in human rights abuses in that province.

Yemen:
On August 25, the Southern Transitional Council (STC) announced its withdrawal from talks with al-Hadi government to implement the Riyadh Accord. It cited seven reasons for the breakdown of talks brokered by the Saudi government.

Floods in various parts of Yemen since mid-July led to the death of 172 persons and exacerbated the Covid-19 pandemic.

Libya:
On August 21, the two antagonists in Libyan civil war Tripoli-based GNA and Benghazi-based LNA declared a ceasefire to enable better pandemic management.

GNA Interior Minister Fathi Bashagha, a strongman from Misrata, was temporarily suspended for supporting the anti-government demonstrations. He was eventually reinstated. New Defence Minister and Chief of Army Staff were appointed on August 29. 

A US defence ThinkTank raised the possibility of ISIS regrouping in Fezzan region in southern Libya after being ousted from Sirte.

Algeria:
President Abdelmadjid Tabboune announced on August 25 that a national referendum on the proposed new Constitution would be held on November 1 2020. The Constitution draft text would be put up to the national parliament before the referendum.
Comment:
Although contours of the new constitution are yet to emerge, President Tabboune promised that it would ensure separation of powers among various state organs and maintain balance among them. Creating new political architecture has been one of the main demands of the popular uprising that brought down the previous president Bouteflika’s 20 year-long rein in 2019. It remains to be seen if the new Constitution would satisfy this demand.           

Egypt:
On August 28, the authorities announced the arrest of Mahmoud Ezzat, Acting Head of the proscribed Muslim Brotherhood who had already been sentenced to death in absentia.

Nile Waters:
The Nile water-sharing issues flowing out of Ethiopia’s Grand Ethiopian Renaissance Dam (GERD) continues to make waves. On August 6, South Africa, current African Union Presidency, appealed to the concerned parties to continue their talks to resolve this issue after two Nile basin riparian countries Egypt and Sudan threatened to withdraw from negotiations. Subsequent Prime Minister level bilateral talks in Khartoum between Sudan and Egypt (15/8) and Sudan and Ethiopia (25/8) both resolved to address this issue through negotiations. Ironically, unusually severe flooding due to the Nile in Sudan also helped to dampen various apprehensions about GERD impact.

Somalia:
On August 8, a blast ripped through some military facilities in Mogadishu killing at least 8 persons. Militant group al-Shabab claimed the responsibility.

Palestine:
On August 31, Qatar mediated a deal between Hamas and Israel to de-escalate their military standoff.
                        
Tunisia:
On August 25, Hichem Mechichi, Prime Minister-designate, proposed a technocrat-dominated Cabinet for approval by the parliament.

US Secretary of State WANA Tour:
Mike Pompeo, the US Secretary of State visited the WANA region during August 23-28. He was in Israel, Sudan, Bahrain and the UAE. Among the main themes of the visit was to spur the normalisation of ties between the Arab countries and Israel. His visit to Sudan, a country on the US list of sponsors of terrorism since 1993 indicated tentative moves towards bilateral normalisation. However, PM Hamdok told him that his being a transitional government lacked the mandate to normalise ties with Israel.

II) Economic Developments

Deflation in MENA Region: Bloomberg’s Global Economy Watch state on August 27 that price declines in Qatar, Bahrain and the UAE were the biggest among more than 80 countries tracked. Oman, another of the six members of the GCC, was not far behind. Inflation has been positive in Kuwait and it recently picked up in Saudi Arabia only after the Kingdom tripled its value-added tax.  

 ​​​Oil Matters:

• In its monthly bulletin for August 2020, the OPEC revised its projection of global demand for crude to decline in 2020 by 9.06 mbpd instead of its last projection of 8.95 mbpd. While demand for OPEC crude was to average at 23.4 mbpd during 2020, it produced 23.17 mbpd during July 2020, with a collective quota compliance level of 97%. While it forecast the global demand for crude to rise by 7 mbpd in 2021, it regarded the outlook to be uncertain due to the various Covid-19 related factors.
• Brent crude was priced at $45.28 on August 31, a five-month high and up 7.5% during the month.
• Although Saudi Aramco profit plunged by 73% during Q2/20,  it reiterated its intention to pay $75 bn in dividends for 2020. The company suspended investments on Liaoning refinery project due to uncertain demand. The mega refinery project was signed up during Crown Prince Mohammed bin Salman’s visit to China in Feb 2019.
• On August 20, President Erdogan announced that Turkey has discovered an offshore gas field in the Black Sea with estimated deposits of 11.3 tcf. This biggest such discovery in Turkey was located at depth of over 1400 meters. He was optimistic that the size of the gas field could be even bigger and predicted commercialisation by 2023.
• On August 19, Saudi Arabia approved Saudi Chevron as the operator for the Wafra oil field lying in the Neutral Zone with Kuwait.

Other Country-Specific Economic Developments:

• On August 5, the IMF predicted the current account balance of Saudi Arabia reaching (-)4.9% of the GDP in 2020 from +5.9% in 2019.
• Israeli economy was expected to decline by 6% in 2020 over 2019 – first such contraction in the country’s history. The figure for Q2/20 was particularly bad as the GDP declined by 7.8% over Q2/19.
• Fitch downgraded Oman for the second time this year, giving the country a sovereign rating of “BB_” which is three steps below investment grade. Akin to S&P and Moody’s it also rated the country’s outlook as “negative.” Fitch cited the dire economic data projections for 2020: Budget Deficit of 20%, CAD of 12% (from 5% in 2019) and Govt Debt of 80% of GDP (from 60% in 2019)
• Dubai emirate’s economy was expected to contract by 11% in 2020. Foreign Direct Investment to the emirate stood at $3.3 bn in H1/20, having plummeted by 74% when compared to H1/19. Total debt of the emirate was $153 bn or 140% of its GDP. Of this amount, $89 bn was owed by Govt. Related Entities.   (Further reading: “Navigating the storm: Can Dubai enter the premier league of financial centres?” The Economist, Aug 22nd 2020; http://go.pardot.com/e/827843/er-league-of-financial-centres/6lj6y/81972500?h=2H52Q-q3ztHTl-y-E02vL3Ui0RAJPDdyQ8Zkvy20kXA)
• Abu Dhabi emirate’s debt increased to $39.2 bn as of end-June, from $29.4 bn last year, thanks to raising two tranches of bond offerings of $7 bn and $3 bn in April and May this year. On August 25, Bloomberg reported that the UAE intends to raise more debt through three tranches.
• On August 19, several economic measures were announced by Algeria to promote the private sector. These were part of a wider exercise to reform the economy affected by a slump in hydrocarbon revenues and Covid-19 pandemic. ​​​​​​(Comment: Algerian economy has traditionally been dominated by state-run enterprises. Some half-hearted and ad-hoc attempts to encourage private sector during Bouteflika-era led to crony capitalism and corruption spurring popular backlash. However, serious economic fundamentals, decrepit state of the public sector and need to assuage the public anger contextualise the current policy shift, which hopefully, would avoid the past mistakes.)  ​​​​
• Through the political crisis and pandemic, the Lebanese economy continued to bleed with Lira, the national currency losing 80% of its value since last October when popular demonstrations commenced. Inflation since the beginning of 2020 has been more than 56% pushing half of Lebanese below the poverty line.
• Lira, the Turkish currency, continued to decline vis a vis US Dollar during August, having fallen by 18% since the beginning of 2020.​​​​​

III) Bilateral Developments

Prime Minister Narendra Modi expressed his shock at the loss of life and property due to a huge explosion in Beirut on August 5.

• On August 6, a Ministry of External Affairs (MEA) spokesman described Turkey foreign ministry statement on Kashmir issued on the previous day to be “incorrect and biased.” He also asked Turkey to refrain from interference in India’s internal affairs. Turkish statement had stated, “the removal of the special status of Jammu and Kashmir had not contributed to peace and stability in the region.”
• On August 14, MEA welcomed the normalisation of diplomatic relations between Israel and the UAE, two key strategic partners of India.
• An Air India Express special flight from Sharjah crash-landed at Kozhikode airport on August 7, killing 17 persons.
• India’s oil imports in July 2020 were at 2.92 mbpd, down 36.4% year-on-year. The figure was the lowest since March 2010. Iraq, Saudi Arabia, the UAE and the US were the top four sources of crude.
• India plans to increase the share of natural gas in its energy basket from current 6.2% to 10.0% by 2025. In Q2/2020, 11.7% of electricity in India was generated by natural gas.
• In a cryptic comment on August 9, Saudi Aramco said that it was still working on the deal to invest $15 bn in RIL’s refining and petrochemical business.
• On August 10, the Indian government approved BCCI proposal to hold Indian Professional League Cricket tournament this year in the UAE beginning September 17.​​​​​​

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